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Bankers, Lutherans Can Make Payday Loans Work at 25%

So a banker, a Lutheran, and a petition circulator walk into a bar….

Apologists for payday lenders tell us that Chuck Brennan, Rod Aycox, and other loan sharks provide a vital service at a fair price (namely, triple-digit annual interest). But well-read reader Deb Geelsdottir sends this article that shows that honest bankers of good conscience can offer a comparable emergency financial product that does not take advantage of low-income people:

Sunrise Banks of St. Paul, which has developed a small-dollar loan program that already covers 10,000 employees through participating employers, last month won a $2.2 million Next Opportunity Award, which is funded in part by Wells Fargo.

…Sunrise Banks spent $1.25 million and three years developing TrueConnect with test employers, including Lutheran Social Service of Minnesota, which provides financial counseling to many payday loan customers trapped in debt. Sunrise, which makes 60 percent of its credit available in low-income communities, has signed up 20-plus employers and is expanding TrueConnect to California, Ohio and other states.

Through TrueConnect, offered as an employee benefit, a worker can get a loan of up to $3,000 but no more than 8 percent of total wages. The loan is retired through payroll deductions for up to 12 months. The maximum interest rate is 25 percent over the one-year term. Employers position the loan as something to be tapped in an emergency to cover a car repair, medical bill or other one-time expense [Neal St. Anthony, “Opponents, New Lenders Get Traction Against Payday-Credit Industry,” Minneapolis Star Tribune, 2015.10.05].

Alas, even as Wells Fargo is helping offer moral financial products, it’s also floating big money to the loan sharks:

U.S. Bank and Wells Fargo dropped their payday-like loan products, known as “deposit-advance products” in 2014, under pressure from bank regulators and consumer groups who alleged that they were small-borrower “debt traps.” Both huge financiers still make an unspecified amount of “wholesale loans,” however, to unspecified payday lenders. That’s how payday lenders fund their operations [St. Anthony, 2015.10.05].

Hmmm… looks like I’d better take one of my real 36%-rate-cap petition sheets to my bank tomorrow and lay some guilt on my teller and my mortgage banker.

But hey, pay attention, payday lenders! TrueConnect shows how decent people can offer a decent financial product and get by charging just 25% interest, without trapping people in more debt than they can afford. You’ll want to study that business model, payday lenders, since South Dakota is going to see through your self-serving subterfuge and cap interest rates at 36% next year.

Related Reading: Allied Progress published this report last week showing payday lenders showering a dozen Congresspeople with cash to protect their exploitative racket. The Campaign for Accountability today filed a formal ethics complaint over these apparent votes-for-bucks.

12 Comments

  1. grudznick 2015-10-05

    This is where I have heard people criticize that Mr. Hickey fellow. His church should step up and offer this service as an even cheaper option since they would have to do it with no profit to keep their vast tax exempt status. If a bunch of churches ponied up a big chit and maybe advertised a bit in the bulletins in their church pews they could probably put the loan sharks out of business without even having to pass a bill.

  2. leslie 2015-10-05

    grudz u putz. how about a teacher’s credit union, or a microlender?

    these erin and lisa lenders, in other states, that have been shut down were using not just three digit interest rates. They were 1200, or 1500% as i recall. give an inch…

    the mob’s rate when they broke legs was what?…

  3. grudznick 2015-10-05

    I’m sure the teacher’s union already runs a credit union. Teachers are too educated to take out the welfare class loans that Badlands Pawn offers and recognize that all spending has to have income to support it. Or you have to take money from the administrators to pay the teachers more. That’s what the BluRT-F group doesn’t want to talk about…I’m just sayin…

  4. Deb Geelsdottir 2015-10-05

    Cory, thanks for posting about this issue.

    Sunrise Banks are not affiliated with any church. They are a private, chartered bank, just like any other bank. Sunrise developed their loan plan because it is The Right Thing To Do. Sunrise is doing this because it is ethical and moral. It’s also a pretty safe bet. 95% of their loans are repaid.

    The part that includes LSS is for financial counseling. LSS is a private, nonprofit business that is affiliated with the ELCA. LSS provides several social services and none are religiously based. By that I mean that the clients of LSS do not have to be Lutherans or even Christians. They can be pagans or atheists or anything else. There is no religious requirement.

    A small group of ELCA churches in Minneapolis have created an entity named Exodus. The purpose of Exodus is to offer small loans to those who are in need. While it has been of help to some, Exodus recognizes that does not have money on the scale of a bank.

    Wells Fargo, Capital One, Bank of America and the like could do something like this on a massive scale and make a real difference to hundreds of thousands of Americans. They could use some of the money they have gotten via sweetheart laws passed by the Congress members they own. They could do that if they were ethical and moral.

  5. grudznick 2015-10-05

    Wells Fargo, Capital One and Bank of America are in the business for profit, but when the Shame Nun speaks perhaps they will listen. As she marches with her bell, their beady eyes will glisten.

  6. leslie 2015-10-05

    haha-god and capitalism/lobbyism is great-how did wf, co and ba do in the TARP bailout, grudz?

    banks should be no more than publicly owned utilities, not like switzerland, caymans, or SFSD

  7. Deb Geelsdottir 2015-10-05

    Grudz, those banks will still make millions, if not billions of dollars in profit. They have no excuse for being greedy suckers,

  8. moses 2015-10-05

    Are the lutheran churches paying off some of those high interest loans for people if they are thank you very Much.

  9. Deb Geelsdottir 2015-10-05

    Moses, I’m not aware of any churches paying off anyone’s loans. They are lending money.

  10. caheidelberger Post author | 2015-10-07

    Deb, that’s good news, especially in the ruling’s statement that we can apply rate restrictions to online lenders, a route our current payday lenders might try to use when we cap their rates at 36%.

    Disturbingly, that article also notes that 4% of Minnesotans use payday loans. That’s 4% too many.

  11. bearcreekbat 2015-10-08

    Deb, Good for LSS – we could use more groups like this.

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